Energy Shortage Constrains India's Economic Growth

Energy shortages in coal, natural gas, and diesel fuel are constraining India's growth. At the heart of the shortages are government subsidies that keep prices low, state-run monopolies that are unable to increase production, and costly imports.

Indian correspondents Amol Sharma and Megh Bahree describe how the shortages of all three fossil fuels hamper economic growth in the sub-continent.

"A shortage of coal, which accounts for more than half of the nation's energy supply, is crippling the power sector, forcing companies to delay the opening of multibillion-dollar projects. India in April announced an 80% jump in coal imports ...but many plants still run below capacity for lack of coal."

Electricity shortages have resulted in clinics being forced to dump vaccines due to lack of continual refrigeration. As many as 400 million rural residents may lack access to electricity.

Coal shortages are largely a result of the inability of Coal India, India's state-run monopoly, to produce enough due to many factors, including old equipment and security threats.

The video shows an operator at a new plant explaining that he has only five days worth of coal stock - when a month's worth should be available.

"(Prime Minister Manmohan Singh) is beginning to realize that there's a very bleak outlook in terms of energy security, and that this is going to create the single largest constraint on the economy", said one energy consultant.

Deregulation of energy will be challenging.

"State-run energy companies are racking up billions of dollars in losses by selling auto fuel, cooking gas and electricity at artificially low prices to protect consumers from global cost increases." Consequently, residents expect low prices on these fuels.

"India has a very distorted system of subsidies," Jaipal Reddy, minister for petroleum and natural gas, said. "But how, in a vibrant democracy like in India, do you change the system suddenly?"

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Full Story: Grinding Energy Shortage Takes Toll on India's Growth



Irvin Dawid's picture

Energy Subsidies in India & U.S. - both hamper growth

India is an extreme example - keeping energy prices artificially low is making imports very costly - as the government is unable to pass on the global price the pay for the fuel, be it coal, natural gas, petroleum or fuel.

On a lesser scale, the "Indian energy constraints" appear in the U.S. in the form of oil subsidies and primarily to the lack of sufficient fuel taxes that motorists pay.

Obama and the Democratic congress have unsuccessfully attempted to eliminate billions of dollars of annual subsidies enjoyed by Big Oil. See NYT, May 8, 2011: Democrats See Strategy to End Big Oil Tax Breaks. Carl Hulse writes that "President Obama and some top Congressional Democrats have said they want to take some of an estimated $21 billion in savings from ending the tax breaks and steer it to clean energy projects...More than $12 billion would come from eliminating a domestic manufacturing tax deduction for the big oil companies, and $6 billion would be generated by ending their deductions for taxes paid to foreign governments..... "

As for motorists expecting cheap gas as they do in India, one just consider that the federal gas tax has been stagnant since 1993 while transportation costs have skyrocketed. The same challenge applies to the U.S. what Jaipal Reddy, minister for petroleum and natural gas, said abou India. "But how, in a vibrant democracy, do you change the system (of applying energy subsidies) suddenly?"
Irvin Dawid, Palo Alto, CA

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